Last month’s Spring Budget was billed by the Chancellor of the Exchequer as a “Budget for Long Term Growth”. Only time will tell whether it achieves that aim but, in the meantime, let’s look at just what the budget holds in store for landlords.
Please note that this is based on the author’s current understanding and research and therefore should not be deemed as professional advice.
Holiday lets
Recent years have seen quite widespread criticism of the growing number of short-term holiday lets – especially in tourist hotspots. Some might argue that the favourable tax regime granted to landlords of furnished holiday lets – tax-free mortgage interest repayments – has unduly encouraged such growth.
The Spring Budget, therefore, proposed the abolition of those tax advantages – arguing that the loss of this and other benefits will encourage owners into much-needed longer-term tenancies. On the other hand, some of those landlords of holiday lets might simply choose to sell up and quit the buy to let market altogether.
An estimated 127,000 dwellings currently benefit from the furnished holiday lets regime and its abolition is expected to raise an additional £300 million for the Treasury (according to an estimate calculated by Landlord Zone on the 20th of March).
The budget includes further blows to the holiday let market by abolishing the right of landlords to deduct the costs of fittings and fixtures from their taxable income, the removal of tax privileges for pension contributions, and the loss of the option to pay a 10% business rate instead of the full capital gains tax (CGT) whenever a property is sold.
Capital Gains Tax (CGT)
On a brighter note, higher-rate taxpayers will welcome the reduction – with effect from the coming tax year – from the current 28% rate of CGT to 24%. There is no change to the basic rate of CGT which remains at 18%. Landlords are affected by the changing rates of CGT, which is a tax applied when temporary residences such as second homes, holiday lets, and but to let rental property is sold.
Even at 24%, CGT is more onerous for higher rate payers than the tax on other assets such as stocks and shares, where the rate is 20%.
Stamp Duty: Multiple Dwellings Relief
Landlords looking to increase the size of their buy to let portfolios will be hit by the abolition of Multiple Dwellings Relief (MDR) from Stamp Duty Land Tax (SDLT) on purchases of residential property in England and Northern Ireland with effect from the 1st of June 2024.
MDR has served as a tax break for landlords investing in multiple properties. It has reduced the amount of tax payable on the purchase of one dwelling calculated according to the average price paid for multiple dwellings. The Chancellor argued that MDR no longer fulfils its original intention of incentivising investment in rental properties.
The saving to the Treasury from the abolition of MDR is estimated to be £700 million annually.
Empty Property Relief
With the imminent start of the new tax year, there will be a “resetting” of the current Empty Property Relief (EPR) arrangements.
Commercial landlords can apply for empty property relief and avoid paying business rates for the first three months from which premises become empty. Up until now, there has been an obligatory 6-week waiting time after the end of one period of relief and the start of any new period of vacancy.
That “resetting” period has now been extended to 13 weeks. The Government website explains: “The current 6 week reset period requirement will therefore still apply where that period started before 1 April 2024 and ends on or after that date. If a previously empty property is reoccupied on or after 1 April 2024, it must be occupied continuously for 13 weeks before it can benefit from a further period of empty property rate relief.”
By extending the delay before qualifying for relief once again, the Treasury hopes to curb the practice of some landlords who have persistently rolled over successive periods of business rate relief on empty properties they own.
VAT
Most landlords do not have to worry about VAT since residential lettings are exempt from that tax.
The exceptions, however, are holiday lets and self-catering accommodation. If you are the landlord of this type of business and your rental income from such property exceeds the tax thresholds, you must register for VAT.
The Spring Budget raised that VAT threshold from its current £85,000 to £90,000 per annum with effect from the 1st of April. The threshold for deregistration has been similarly increased from £83,000 to £88,000.
Industry reactions
Although the reaction from the private sector rental industry has been mixed, the overall assessment is probably best summed up by the National Residential Landlords Association (NRLA) in its comments on the 6th of March.
The Spring Budget represented a “missed opportunity” and a failure to give priority to investment in the provision of new homes to rent, said the NRLA. It accused the Chancellor of “tinkering” with marginal issues for short-term electoral gain rather than giving support for longer-term investment in a high-quality private rented sector. By way of illustration, the NRLA considered that increased taxation of holiday lets and bigger allowances on CGT would make little difference to the long-term investment in this sector of the housing market.
There had been a failure to address the current high demand for and low supply of affordable, quality rented accommodation, complained the NRLA.
